Wednesday, November 24, 2010

The chart above says it all. The talking heads and political pundits are either idiots or liars (maybe both), but either way they are wrong, wrong, wrong. Do not listen to them. The numbers above come directly from the United States Commerce Department. No, they are not "cooking the numbers." The nerds and geeks deep inside the Commerce Department are doing their best to get the accurate numbers, regardless of who is president.

If you want the truth on the economy listen to POLICEPAY. We give it to you straight every single day of the year. We just "tell it like it is" - good, bad or indifferent. Listen closely:

The economy is booming (November 24, 7:30 AM CST). This recovery is NOT a weak recovery. There is not going to be a "double dip" recession. The United States economy is the strongest and greatest economy on the planet. There will be eight to ten more years of expansion, strong expansion, before the next recession. We are not burdened with a huge debt. Look at the history of our debt as compared to GDP. Look at the trend, not just one recession year. Public safety pension plans are not going broke. We are not saddling our children with a big economic time bomb.

A Brief Look At Our Next Pension Article

What happens to all current production (GDP)? It is currently consumed. You cannot eat today an ice cream cone that will be produced five years from today. You have to eat today's ice cream cone. We cannot consume future production, only current production. Yes, we could have some left over production from last year, but it would be gone soon. The next article is about ready. You may be surprised to find out that the "Emperor Has No Clothes" or as Harvey McKay put it "Beware of the Naked Man Who Offers You His Shirt."

Tuesday, November 23, 2010

Newark FOP Stands Up Against Political Tyranny The Newark FOP has balls like the Tulsa FOP and the Cleveland Police Patrolmen's Association. The rest of you need to regain your backbone. The recession has ended long ago. The time for eating give backs is over. Now is the time to regain your confidence. No one should be giving back money today. You may not be able to get much in the way of an increase, but under no circumstance should you be giving things back to your city.

Now is the time to stand up against the senseless attacks on your pay and benefits. To hell with the press and the small government crowd. They are wrong - dead wrong. Now is the time to start taking chances. It is better to get your butt whipped than it is to roll over. Are the Newark cops worried? Damn right they are, but they are not hiding in the corner. They are sticking their necks out - way out. The rest of you need to follow their example.

Tuesday, November 02, 2010

"One of these days Alice, one of these days - POW!! right in the kisser!" Ralph Kramden

"Ah, shuuut up." Alice Kramden

Introduction

This is the first of seven articles dealing with the issue of what we pay, or should pay, police officers in the United States. The presentation is linear and abridged. The reader has to start with chapter one and read each subsequent chapter in the order that they are numbered. There will be no repetition. After the lasted chapter is issued, a PDF version of all seven will be posted on the POLICEPAY.NET internet publications. The seven chapters are:

1 - The Total Wage Package

2 - The Pension Cost

3 - The Pension Funding

4 - The Group Insurance Plan

5 - The Retiree Insurance Plan

6 - The Ability-To-Pay Issue

7 - The Exploding Economy

Purpose

Currently, there is a group of vocal political activist in this country who are openly and unabashedly attacking the present compensation system for police officers. Their primary focus is on defined benefit retirement plans. However, the level of total compensation is also repugnant to the antagonist.

Most of the rhetoric is based on a belief that a financial apocalypse is eminent and unavoidable unless severe and draconian reductions in pay and benefits for police officers, public safety employees, and all government employees are made very soon. The defined benefit retirement concept is being portrayed as a Ponsi scheme. Their message is gaining acceptance and approval. To be completely honest with you, they are winning the war. We can no longer marginalize them in the public’s perception. We can no longer pretend they do not exist. They are here, they are real, and they are in our face.

The most effective and damaging assaults are coming from “small government fiscal conservatives” based in California. The leaders of this ad hoc movement are good, educated, sophisticated, and credible people. They are very engaging and likeable. The ad hominem will not work against them. You will find none here. Their thesis will have to be taken apart plank-by-plank and we will do exactly that, but we will not ascribe any motive to their actions. We will assume they are motivated by good intentions and as such, we will mention them no more. It is doubtful if we can change any minds among the core group. However, we will arm you with the arguments to “take them out” when the battle reaches your city hall. For some places, it is already too late. Read this material closely and prepare yourself for the battle that awaits you.

Chapter One – The Total wage Package

If compensation was limited to only a base rate of annual pay with no enhancements or benefits, our discussion would be brief. In fact, we would not be having this discussion. There would be no need for it, but as we all know, it is not simple and it is actually very complicated. There two competing variables to employee compensation:

• How much economic value is the employer transferring to the employee

• How many hours must the employee forfeit to the employer’s control

If we know these two amounts, we can calculate the price the employer is paying for each hour he controls the employee. A forty hour job that pays one thousand dollars would yield an hourly rate of twenty-five dollars. Statistically, the hour rate is the correct point to measure pay, but we are not going to use that calculation. If we use an hourly many people will simply look at their take home pay and divide it by 40 or 80 and then compare it to the example we are about to use. We will be using annual pay – all annual pay. Some of our remarks may appear to be simplistic and condescending, but we can reassure you that we have no desire to insult you. We just want to be absolutely certain that the reader of this discussion has no “plausible deniability” when he starts preaching flat earth theory. So, don’t say you ain’t been warned, ‘cause you have.

The economic value transferred to an employee is transmitted two ways:
• A direct payment to an employee
• An indirect transfer or assignment on behalf of an employee

Let’s assume that a typical police officer has a year-to-date paystub on the last day of the year that looks like this:

Base Pay 45,000

Longevity 2,000

Shift Differential Pay 1,800

Education Incentive 1,200

Gross Pay 50,000

Medicare (725)

Federal Tax (5,900)

State Tax (975)

Retirement Contribution (3,500)

Health Insurance Premium (3,900)

Total Deductions (15,000)

Net Pay 35,000

If we ask our good officer what his hourly rate of pay was, he would probably divide $35,000 by 2,080 hours and tell us $16.83. Some might use $45,000 or $50,000 divided by 2,080 hours. They would all be low – very low. What is the annual paycheck for the officer on the previous page? It is $50,000. While it is true he only received $35,000 in the form of cash, the other $15,000 was paid to his benefit. In addition to the pay stub there are things not on the paystub the employer paid for the employee that have to be added to the $50,000 . Look at the deductions. The $725 withheld for Medicare has to be matched by the employer. See the retirement deduction? That only represents 1/3 of the total contribution. The employer has to pay twice that amount. Next, the health insurance deduction of $3,900 only covers 30% of the premium. The employer pays the remaining 70%.

We are not done yet. The employer gives the officer uniforms with a value of $750 each year. The employer contributes $700 for retiree insurance. The employee pays nothing. The table shows the real pay.

Base Pay 45,000

Longevity 2,000

Shift Differential Pay 1,800

Education Incentive 1,200

Direct Pay 50,000

Medicare (employer) 725

Uniforms 750

Retiree Insurance 700

Retirement Contribution 7,000

Health Insurance Premium 9,100

Indirect Pay 18,275

Total Pay 68,275

Obviously, the result of dividing this number by 2,080 yields a much larger number, but no one works 52 weeks of the year. The real number of hours is closer to 1,880. The actual amounts paid are not the same all across the country. In some California cities, the amount we are showing is the starting pay. In some Alabama and Mississippi cities, even the chief is well below this amount. If we take the country as a whole, this is about the average for a police officer. We are presenting these numbers, not for their absolute value, but as an example.

Okay Mr. Taxpayer, which of the 13 numbers above is causing you to be unhappy? Forget about the problems involving the volatility of pension contributions. For now, just focus on the concepts, not the actual numbers. Rather than preach at you, we will ask you a series of questions that allow you to make your own conclusions. What are your concerns?

1. Is it the amount of total compensation?

a. How did you determine that it is too high?

b. Do you or people you know make more than that amount?

c. How do you determine who’s pay is justified and who’s pay is not?

2. Is it the pension contribution?

a. What if all the other compensation items were removed, would the pension contribution still be too much?

b. What if the pension contribution was removed, would total compensation still be too high?

c. Repeat 2, 2a, and 2b for all the other line items.

3. Does any single item by itself really matter?

a. Go into the bathroom. Lock the door. Look straight into the mirror. Ask yourself question 3 again? Keep asking yourself that question until you get the right answer –“NO.”

Base pay, pension contributions, health insurance premiums, or any other single line item means nothing by itself. Forget about the current pension contribution rate. We will cover it in a later chapter. For now, concentrate on the concept. If you want to give us a “piece of your mind” please stick to the issues and the fact. We have already heard all the dogma and mantra from both sides. Try responding by answering these questions

1 – What should police officers be paid?

2 – How did you come up with that amount?

3 – What should you be paid?

4 – How did you come up with that amount?

5 - How do you measure the elasticity of demand for law enforcement?

6 – How do you measure the marginal utility of an additional unit of law enforcement?

7 – How do you measure the average utility of a unit of law enforcement?

8 – Do you know that only one side of law enforcement pay is market driven?

9 – Do you know that the demand side is a “command economy” function?

10 – Do you know what spillover costs are?

11 – Do know what the “free rider” is?

12 – Do you know how to determine the “equilibrium price” for police compensation?

13 – Do you know of an alternative to “equilibrium price?”

Find the last nine questions perplexing? Welcome to the big leagues. Want to play in the big leagues? You have to be able to hit the big league pitch – any pitch, any time, any place. What’s wrong with current police compensation? Let us tell you. It is too low, that’s right – too low. Don’t agree? Let’s hear your FACTs. Don’t give us the Tea Party blather. Give us economics (Keith Olderman is not an economist). Send it to rjy@policepay.net

If you agree with us, send your remarks, but no personal attacks – especially no personal attacks on Jack Dean, Marcia Fritz, or The Captain. We consider all three as friends – friends we do not agree with, but friends.